Bank for International Settlements (BIS) Research Initiative on Decentralized Finance and Cryptoassets
The Bank for International Settlements (BIS) has released initial findings from its research project on decentralized finance (DeFi) and cryptoassets. The project aims to develop a prototype crypto monitoring system called Atlas, which will provide regulatory authorities with a more comprehensive understanding of the utilization of cryptoassets.
The BIS recognizes that while crypto markets introduce innovative technologies, they often lack transparency, posing potential risks to financial stability. Recent events, such as exchange collapses and issues with stablecoins and DeFi platforms, have highlighted the challenges in assessing and managing these risks.
Data Aggregation for DeFi and Cryptoassets
The Atlas project has created a proof of concept platform that aggregates data from both publicly available on-chain crypto ledgers and harder-to-obtain off-chain data reported by select exchanges and users. This data compilation offers initial insights into cryptocurrency activity.
By focusing on cross-border capital flows, Atlas addresses the relevance of cross-border crypto flows to central banks for cross-border payments, economic analysis, and balance of payments statistics. These flows can be a significant portion of cross-border transfers for some countries, but quantifying them is challenging due to data gaps.
Preliminary findings highlight the economic impact of identified flows between crypto exchanges. The attribution of geographical areas to exchanges provides insights into the structure of cross-border flows, making Project Atlas a valuable resource for conducting structural analyses across jurisdictions.
Informed Policymaking for Crypto and DeFi
Global regulators have expressed concerns about the decentralized nature of cryptocurrencies, especially following the collapse of stablecoins like Luna and TerraUSD and the FTX platform. In response to these concerns, the BIS innovation hub prototype generates dashboards that illustrate aspects of bitcoin conversion into US dollars in specific parts of the world. These dashboards can shed light on the adoption and significance of crypto markets as they fluctuate in popularity.
The BIS emphasizes the need for central banks to acquire first-hand knowledge about cryptocurrencies and DeFi, understanding the associated risks and opportunities. The project aims to equip policymakers with tools for informed decision-making on crypto and DeFi matters, enhancing the analytical and technical capabilities of central banks.
The dashboards will soon be made available to select central banks for testing, gathering feedback, and further refinement.
Hot Take: BIS Research Initiative Enhances Regulatory Understanding of Cryptoassets
The Bank for International Settlements’ research initiative on decentralized finance and cryptoassets, along with its prototype crypto monitoring system Atlas, aims to provide regulatory authorities with a deeper understanding of how cryptoassets are used. This initiative addresses the lack of transparency in crypto markets and the potential risks they pose to financial stability.
By aggregating data from both on-chain and off-chain sources, Atlas offers insights into cryptocurrency activity and cross-border capital flows. It provides valuable information for central banks in analyzing cross-border payments and economic statistics. The project also enhances policymakers’ knowledge of cryptocurrencies and DeFi, equipping them with tools for informed decision-making.
With the release of informative dashboards, regulators can monitor bitcoin conversion into US dollars in specific regions, gaining insights into the adoption and significance of crypto markets. This initiative contributes to an enriched comprehension of crypto technology and strengthens the analytical capabilities of central banks.
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